Pension-related matters may not always be at the top of an entrepreneur's mind. Even if you don't feel like preparing for your retirement years now, have you thought about how you would survive financially if you got ill, lost your work ability, had a child, or became unemployed? The most important way for entrepreneurs to prepare for surprises and secure their income is to take out statutory self-employed persons' pension insurance (YEL insurance). Despite its name, it involves much more than a pension, as YEL income also serves as the basis for the entrepreneur's other social security.
But in what ways does YEL income affect an entrepreneur's life?
1. Sickness allowance
If you fall ill, you can apply to Kela for sickness allowance to compensate for the loss of earnings caused by your illness. As an entrepreneur, you are entitled to sickness allowance from the first day of sickness if you are unable to work because of sickness and have been working as an employee or self-employed person for at least three months before becoming unable to work. Otherwise, you will only be entitled to sickness allowance after 10 consecutive days of incapacity for work. Kela calculates the sickness allowance on the basis of your YEL income.
2. Disability pension and rehabilitation
If your illness is prolonged and you cannot return to work, YEL insurance will help. If you are self-employed, you can get a fixed-term rehabilitation allowance or a permanent disability pension if you are unable to return to work, for example through vocational rehabilitation. The amount of your YEL income affects the amount of the allowance and pension.
3. Unemployment benefit
An entrepreneur may also face unemployment, in which case YEL insurance will affect unemployment benefits. When your YEL income exceeds the so-called minimum income level for the unemployment benefit, which is at least EUR 14,803 (2024), you may be entitled to Kela's basic unemployment allowance. If your YEL income is lower than this, you can apply to Kela for the labour market subsidy. If you keep your YEL income up to date and join an unemployment fund, you may be entitled to an unemployment benefit based on your earnings level in the event of unemployment.
4. Parental allowance
YEL insurance also affects your income during family leave. Kela's parental allowances include maternity, special maternity, paternity, parental allowance, and partial parental allowance, all of which are based on the entrepreneur's annual income derived from his or her YEL income.
If you do not work as an entrepreneur during your family leave, your YEL insurance can be terminated on your last day of work. When you return to work in your company, take out new insurance. If, on the other hand, you work during family leave, your YEL insurance will not be terminated. However, it is worth adjusting your YEL income if your work input in the company decreases during the family leave.
5. Accident insurance
If you have YEL insurance, you can also take out entrepreneur's voluntary accident insurance, for which your annual earnings are based on your YEL income. Your YEL income will also affect any compensation for loss of earnings and pensions that may result from an accident at work.
6. Earnings-related and survivor's pension
In addition to the old-age pension, YEL income affects other pensions under the earnings-related pensions acts. An entrepreneur accrues an earnings-related pension of 1.5% of his or her annual YEL income. An exception to this is YEL insured persons aged 53-62, who accrue pension at a rate of 1.7% of their YEL income during the transition period between 2017 and 2025. In the event of the death of a breadwinner, YEL insurance provides cover.
Read more about the survivor's pension, i.e. the orphan's and surviving spouse's pension